China’s trillion dollar mobile payments industry is under attack

China’s central bank says it wants to shine more light on mobile payment products.
China’s central bank says it wants to shine more light on mobile payment products.
Image: Reuters/Jason Lee
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Things aren’t looking great for Chinese firms working in the world of mobile payments. The fast-growing trillion dollar industry—which includes online investment funds, virtual credit cards, and e-commerce–is facing new pressure from Chinese regulators and state-owned banks.

This week, China’s central bank said it is considering placing limits on how much cellphone users can spend via their smartphones. The regulator is also considering requiring online money market funds, like Alibaba’s Yu’e Bao, to begin holding minimum reserves on the deposits they collect. Over the past few weeks, China’s top four banks, all of them state-owned, have set limits (paywall) on transfers to mobile financial products. And earlier this month, China halted the use of virtual credit cards and QR codes, used for online shopping.

The crackdown is threatening to impinge on one of the country’s most dynamic business sectors. Last year, about 1.67 billion financial transactions were made via mobile phones, for a total turnover of 9.64 trillion yuan ($1.6 trillion). That was a 213% increase in volume and 317% increase in terms of the value of transaction.

As we’ve pointed out, the battle for China’s millions of middle-class internet users is shifting. The rise of mobile payment products, ranging from wealth management funds to crowdsourced cancer insurance, has pitted internet giants like Tencent or Baidu and e-commerce firms like Alibaba against each other. But these companies are increasingly competing with state-owned Chinese banks and mobile carriers.

The latest bunch of pushback from regulators suggests that the state-owned companies may be getting the upper hand. Chinese regulators say the new scrutiny come out of concern for information security, but at least some internet executives believe it’s politically motivated. ”Let the users decide who wins the game, not monopoly and power,” Jack Ma, founder and current chairman of Alibaba said in a comment on Alibaba’s messaging app Laiwang. “Sometimes you’re not defeated by technology; sometimes it’s a document.”

The comment subsequently was wiped from the platform without explanation. When asked by Quartz about its removal, Alibaba declined to comment.